IRS: What Is Taxable Interest?

The U.S. tax code on what interest is taxable can be somewhat confusing, especially since numerous investment vehicles pay interest in different ways. This is why the IRS clearly defines taxable interest.

Bank Accounts

Under IRS rules, any kind of income that you receive from bank accounts, CDs, and the dividends from insurance proceeds that were deposited at a financial institution are taxable.


Any kind of dividends that you receive from common stocks, preferred stocks and mutual funds is considered to be taxable.

Corporate Bonds

The interest that is received from various corporate bonds is considered taxable in the year that it was received.


The interest on some investments is considered to be tax free or can be paid later. These include: savings bonds, interest on insurance dividends at the Veterans Administration, and bonds issued by U.S. territories such Puerto Rico.


When you are reporting interest to the IRS, you would do so using forms 1099, 1040 or 1096.